Despite a falling euro and deteriorating European sentiment, European demand for Asia products has held up well, as shown by China's recent surging export data.
But this doesn't mean that Asian manufacturers aren't feeling the effects of a weaker euro.
Many have likely refrained from increasing their prices in-line with the deteriorating euro, thus trading off profits in order to defend market share and revenue. Others are simply forced to digest pricing negotiated well in advance, before the euro slumped by nearly 20% vs. the U.S. dollar.
"For euro-based orders, we could lose our shirts and pants and underwear," says Willy Lin, managing director of Milo's Knitwear International Ltd., a 52-year-old, family-owned sweater maker based in Hong Kong that caters to high-end European labels.
Moreover, it's easy to underestimate how badly even small moves in the euro can damage an Asian manufacturer's profits. Here's one shocking example:
High-end electronics manufacturers have been among the first exposed. CLSA analyst Saurabh Chugh estimates Taiwanese computer maker Acer Inc. gets half its revenue from Europe. In percentage terms, its earnings fall 5% for every 1% decline in the euro versus the New Taiwan dollar, he estimates. Korean giant Samsung Electronics Co. counts 15% of its revenue in euros.
China's solar panel industry has been particularly affected. Solarfun Power Holdings Company Ltd., a Shanghai-based solar-equipment manufacturer, gets 85% of its sales in Europe.
Thus while May European import data looked strong, recent European weakness might have been under-represented by the straight import/export volumes and could show up in future profit reports from Asia-based manufacturers.
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